US dollar regains lost ground on peers after more signs of Eurozone fragility

After last week’s volatility following the ECB and Bank of England announcements the markets started this week remaining mostly stable, with little movements or data releases in the lead up to more significant announcements later in the week.

GBP

Sterling fell slightly on the dollar by 0.2% during trading on Monday in a quiet day both in the UK and across the pond.
UK government bonds rose for a third consecutive day in the lead up to the BoE inflation report. 10-year gilt yields fell to the lowest level in just over two weeks closing at 2.17%, the lowest level since 22nd October. The market focus for the week will be the Bank of England’s quarterly inflation report on Wednesday, which could provide mixed signals. A downward revision of short term inflation forecasts on low energy and food prices is expected, likely to be supplemented with a higher revision in the long term forecast.

EUR

Further signs of fragility emerged among Eurozone economies yesterday after a series of weak data releases. The single currency rose during morning trading before falling off during the afternoon to finish the day 0.2% down on sterling and 0.3% down on the dollar.

The Italian and Greek economies continued to falter in September, fuelling speculation over a possible relapse into recession in the Eurozone. Annualised industrial output fell in Italy by far more than expected to 2.9%, its greatest decline in over a year, while inflation in Greece remained negative in October, down YoY by 1.7%. Investor confidence within the Eurozone also remained negative for the third consecutive month despite increasing slightly to -11.9 according to Sentix’s monthly survey.

Limited economic data in the Eurozone today could cause the single currency to trend in a narrow range with its peers, although considerable volatility is expected towards the end of the week with German inflation and GDP data out on Thursday and Friday.

USD

Greenback weakened for a second day during Asian trading on Monday. The dollar did, however, regain ground during London trading, appreciating by 0.35% against its major peers and remaining broadly strong having now risen 2.5% in the past month.
Monday saw limited data releases in the US, in line with its major counterparts. The 3-month bill auction, the average yield on the bills auction by the US department of treasury, did, however, increase from 0.02% to 0.025%, while the 6-month bill auction remained constant at 0.06%. Some sales data out in the US today with the releases of the Redbook index figures for November at 1:55pm in New York.

Rest of the world

The Chinese Renminbi fell on the dollar by 0.1% after inflation in the world’s second largest economy remained stable in October. The YoY inflation in China remained at an almost five year low of 1.6%. Meanwhile the number of new houses constructed in Canada registered a lower than expected reading of 183,600 in October, causing the Canadian dollar to fall by 0.25% on greenback.
Elsewhere, the Indian rupee strengthened by the most in three weeks on the back of the recent decline in the price of crude oil, easing costs for the country which imports 80% of its oil.